Global bond investors lose $337 bn in single day after Trump win

Global bond investors lost $337 billion in a single day Wednesday as Donald Trump's election as US president sparked concern his plan to boost economic growth will lead to a surge in inflation.

The total market value of bonds around the world slid by $692 billion over the past three days, data compiled by Bank of America Merrill Lynch show, bolstered by speculation Trump's victory and a Republican-led Congress will lead to a wave of spending. Traders boosted their inflation outlook and increased bets the Federal Reserve will raise interest rates. Bonds had initially risen on haven demand as the early vote count showed Trump set to win the election, before changing direction.

''Trumpeconomics implies a likely faster pace of Fed rate hikes next year,'' Robert Rennie, head of financial markets strategy at Westpac Banking Corp in Sydney, told Bloomberg News. ''It is clear that this wave of populist vote has reflected, in part, dislike of tight fiscal, easy monetary policy. If we are now seeing a shift in the US, then that means markets will have to reprice this.''

The US 10-year note yield will climb to 2.30 per cent by June, Rennie said. The benchmark was at 2.02 per cent as of 6:09 am in London on Thursday, according to Bloomberg Bond Trader data. The yield jumped 20 basis points Wednesday, the most on a single day since July 2013.

Trump, the 70-year-old real estate magnate, has pledged to cut taxes and boost spending on infrastructure by as much as $500 billion. His proposals would increase the nation's debt by $5.3 trillion, the non-partisan Committee for a Responsible Federal Budget estimated. The government's marketable debt has more than doubled under President Barack Obama, to a record of almost $14 trillion.

The extra yield on US 30-year Treasuries over two-year notes surged to the highest since February on Wednesday as investors priced in Trump's pro-growth policies. The spread was at 195 basis points Thursday, after reaching 199 basis points a day before.

Inflation fears
The difference between yields on 10-year Treasuries and US inflation-linked debt, a gauge of expectations for consumer prices, jumped to 1.87 per cent Wednesday, the most since July 2015. The figure shows the market's forecast for the annual average inflation rate over the period.

Quickening inflation means Fed policy makers may act more swiftly to raise interest rates after holding off since increasing them from near zero in December 2015. There's an 82 per cent chance they will move at their 13-14 December meeting, up from 76 per cent at the end of last week, according to data compiled by Bloomberg based on futures.

''We had flagged repeatedly that longer-term yields are too low relative to inflation,'' said Eugene Leow, a fixed-income strategist at DBS Group Holdings Ltd in Singapore. ''The market has been adjusting, but it took a Trump victory and a Republican sweep of Congress to prompt the market to rethink the inflation outlook.''